The business press descended upon Greg Smith’s New York Times Op/Ed with a predictable alacrity. Since the financial crisis, the nation has been embroiled in a debate about our financial system, and Greg Smith is that debate writ large. Plus everyone loves to read about public airing of grievances, especially when those grievances are directed at America’s famous bogeyman: Goldman Sachs. But the coverage wasn’t all, or even mostly, sensational.

In fact, the Greg Smith affair has given us a nice chance to have a debate about the very nature of capitalism. After all, Smith’s main criticism of his former employer is that it was concerned above all else with profits. But isn’t that what capitalism is? The famous “invisible hand,” which Adam Smith argues will promote the general welfare, assumes that the actors within an economy are working toward their own selfish interests.

This is the line that the Bloomberg editorial board took yesterday in its rebuke of Smith titled, “Yes, Mr. Smith, Goldman Sachs Is About Making Money.” In a scathing write-up Bloomberg makes fun of Smith’s assertion that Goldman could make money while also looking out for their client’s best interests:

“Apparently, when Greg Smith arrived at Goldman Sachs Group Inc. almost 12 years ago, the legendary investment firm was something like the Make-A-Wish Foundation — existing only to bring light and peace and happiness to the world.”

“For all of Mr. Smith’s self-righteous bluster, he is late to the game. Worse, his assertions that Goldman has traded loyalty and respect seem almost too neat. Goldman, Google Inc. or any other business might strive to “not be evil,” but such idealism is only a priority after the profits have been booked.”

In the brass-knuckled world of American capitalism, best leave your idealism at the door, right? Surely, Economics 101 teaches us that if Goldman were really abusing its clients, the market would deliver justice; over time those clients would find an investment bank that would better serve them, driving the vampire squid to the cold embrace of Chapter 11. This is basically the argument that Nathan Vardi of Forbesposits as well. If Goldman abuses its clients, those hapless suckers whom Goldman employees derisively refer to as “muppets,” then the muppets should be blamed for sticking around:

“If what Smith is saying today is true, then the biggest problem remains the “muppets.” Not Kermit or Gonzo, but the investors that Smith claims continue to buy garbage from Goldman. Until those clients start to take responsibility for themselves, Goldman will remain incentivized to sell stuff to them.”

Unfortunately the world cannot be neatly explained by Economics 101, a fact that many of us are too often guilty of forgetting. There are all sorts of reasons why the market may be prevented from delivering justice to firms who mistreat their customers or inefficiently deploy their capital. Yves Smith, proprietor of the Naked Capitalism blog, worked for Goldman Sachs in the 1980s. She explains in an interview on the Real News why Goldman is able to take advantage of its clients without them necessarily knowing what’s going on. She argues that complex derivatives enable Goldman to furtively defraud its clients in a way they were unable to do in the past. She also says that many clients are willing to accept being taken advantage of for other reasons too:

“There are powerful network effects in trading markets. People want to go with the firm that executes a lot of order flow, even if they know they’re somewhat predatory.”

James Shaft of Reuters argues along similar lines, saying that financial markets don’t operate properly without strict regulation, and that pining for the days when banks took the long view misrepresents the past. It wasn’t because investment banks weren’t publicly traded or that bankers of 40 years ago had more scruples, he argues, but that heavy regulation prevented the kind of excesses that investment banks engage in now.

So it appears that the debate over Greg Smith is turning into a proxy for the same debate we’ve been having over the past four years, namely, what is capitalism, and how much or how little regulation do we need to make it function effectively? All the other arguments are just a sideshow. Several pundits made hay yesterday attacking Smith personally, arguing that he waited till he made his millions to get religion, or that he only quit because he was consistently passed up for promotions. These arguments are not only uninteresting, they are besides the point. There is little doubt that the sort of stuff that Smith described in his Op-Ed happens regularly at Goldman Sachs. The question now is whether this is just hard-nosed capitalism or evidence that a once healthy financial system has lost its moorings.